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If you own the mobile home, and your sister doesn't pay rent to you, then "a second home" is exactly the correct characterization.
Admittedly, the lot rent she pays can be considered a payment to you, but it's probably not significant.
In general, if a relative lives in your property, and doesn't pay reasonable rent (which could be below fair market rent, due to the fact that you know her and might trust her), then it's treated, for (some) tax purposes, as if you lived in the property.
Please keep in mind that, dependent on the extent of her disability, you may be able to claim her as a dependent. For that purpose, the cost of maintaining the mobile home may be considered as part of her support which you supply.
There may be other ways it may be considered a rental or investment property, but, unless you can think of some, you'll need to amend your 2009 and 2010 returns to remove it as a rental, and put it in the "second home" category.
thank you Arthur...I was apprehensive about the right to use the "second home" category. But now I feel better. Wish me luck in doing the amendments. I hope Turbo is set up to ask the right questions or I'll be back.. take care and thanks again
one question more please regarding the right to claim my sister dependent upon her disability..Social Security has said she is 100% disabled and that's why she's getting her Medicare/Medicaid before age 62...she's been getting it about 5 years now I believe..what proof might I need if the IRS asks for proof? also, she has given me authorization (through Social Security) to be responsible for her bill payments, etc. because she forgets and also isn't capable of keeping good records when she is doing the checking, etc. on her own.
The definition of "permanently and totally disabled" for the purpose of the dependency deduction is "[S]he cannot engage in any substantial gainful activity because of a physical and mental condition." and "A doctor determines that the condition has lasted or is expected to last continuously for at least a year or can lead to death."
The Social Security Administration has so constructed their web site so that I cannot determine their definition, but I believe it to be comparable. If it is, you can use the SS finding to support the tax finding. If not, you'll need to get a doctor's certification.
As I read Publication 501, outlining the rules for the dependency exemption, it only seems to make a difference if she has more than $3700 in income (disregarding Social Security), and if she is younger than you (or your spouse), and she lives with you 6 months out of the year. If she has $3700 or less in income, and you supply over half of her "support", then she is either a "qualifying child" or a "qualifying relative" (never mind the wording; a relative can be a qualifying child; a child can be a "qualifying relative" and not a "qualifying child", and neither need actually be a relative.)
The cost of maintaining the mobile home counts as part of "support".
If she is considered disabled, then any income from a "sheltered workshop" is excluded from gross income for the purpose of the income test.
The specific rules (assuming she is over 26) are:
She is a "qualifying child" if she lives with you at least 6 months of the year, is disabled, and she does not supply half of her support.
She is a "qualifying relative" if she is not a "qualifying child" of anyone, has at most $3700 in gross income (disregarding Social Security, and (if disabled) income from a "sheltered workshop"), and you supply more than half of her support.